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Hi Marc,
There are numerous ways to play this, depending on
your risk tolerance. One way is with Bull Call Credit Spreads, sell a call
option and simultaneously buy a higher strike call option. The chart below
shows some possible trades using QQQ calls.
align=baseline border=0>
Since your time frame is May -June, there are
four combinations that look interesting. Each of them has a Net Credit
greater than or equal to the Max. Risk and require less than a 2 point downward
move to Break Even (Calculated by subtracting the Break Even value
from the close of 34.46). They are May 32-33 spread, May 33-34 spread,
June 32-33 spread and June 33-34 spread. The May 32-33 spread has the best
risk reward ratio (Net Credit divided by Maximum Risk) of 2.333 to 1,
however it requires a move down of 1.76 to break even by May 17.
align=baseline border=0>
The June 33-34 spread is the most conservative of
the four, since it requires a downward move of only 0.96 points by June 21 to
break even, and offers a 1.86 to 1 risk reward ratio.
align=baseline border=0>
If you move further down the chart to say the June
38-39 spread you will see that the break even point would require an UPWARD move
of 3.64 points before you would begin to lose money, however the risk reward
ratio is negative. Also note the margin requirements
increase.
align=baseline border=0>
These trades limit your potential losses if
you are wrong, but also limit your potential gains if you are very right.
By the way, what are you basing your predictions on?
Good luck and good trading,
Ray Raffurty
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
Marc Lawrence
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Friday, April 19, 2002 8:13
PM
Subject: [RT] trading question
Hello all,It looks like the market will have a
little run intoMay- June area and then it looks like we may be in fora
fall. Additionally there a preponderance ofoverbought sectors-
sentiment indicators also showmore bullishness.My question is
this. How would traders on the listlook to profit on shorting the
market indices S&P andNasdaq? There are many vehicles
QQQ, futures, rydex shortfunds. There are also a number of option
strategiesthat could be employed here. I am
specificallyinterested in stimulating discussion on whichstrategies
have the best possible risk-reward forplacing such a directional
bet. I know it's a broad question but I am interested inhow
traders on this list would approach this.Thanks in
advance,Marc__________________________________________________Do
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